Economists cut China growth forecasts as lockdowns hit economy

A slew of economists have cut their forecasts for China’s full-year economic growth in recent days after the country reported worse-than-expected data for April while still signaling that its tough anti-Covid curbs aren’t going anywhere.

Standard Chartered Plc and Bloomberg Economics each downgraded their estimates for 2022 on Thursday, after Goldman Sachs Group Inc. and Citigroup Inc. did so earlier in the week.

Stringent Covid controls weighed heavily on activity in April and early May, disrupting production and consumption, the Standard Chartered economists wrote. They cut their full-year growth forecast to 4.1% year-on-year from 5%, and also lowered their second-quarter growth estimate to 0.3% from 3.5%.

Recent improvements in China’s Covid situation, along with continued policy support, should facilitate a recovery in the second half, they added. But the economists also estimated that “every additional month of severe lockdowns would trim annual growth” by as much as 0.6 percentage point.

The downgrade by Bloomberg Economics was even more severe: Economists now forecast growth of just 2% this year, down from 3.6%.

“Stimulus is failing to get much traction due to the restrictions on activity. The government and People’s Bank of China have room to step up support — and we expect them to deliver,” economists Chang Shu and Eric Zhu wrote in a report. “But even in an upside scenario, with an unlikely relaxation of the Covid Zero stance, a 5% expansion — let alone the government’s 5.5% target — looks out of reach.”

The Bloomberg economists project a contraction of 2.7% in the second quarter, down from a previous estimate of 1.5% growth.

Beijing’s growth target is looking harder to hit as Covid outbreaks and lockdowns hit economic activity. Authorities have ramped up calls for support in recent weeks, with Chinese Premier Li Keqiang telling local governments Wednesday to “act decisively” in an effort to bring the economy back on track as soon as possible.

Also on Wednesday, Goldman Sachs economists cut their 2022 economic growth forecast for China to 4% from 4.5%, citing the government’s doubling down on Covid Zero.

And Citi economists on Tuesday downgraded their GDP forecast to 4.2% from 5.1%, saying that the impact of Covid lockdowns on economic activity look set to extend into June and beyond. — Bloomberg